auto_stories Quarterly Carbon Market Report December Quarter 2022

Third highest annual installed solar PV capacity on record

Following a slow start to the year, demand for rooftop solar PV rebounded in the second half of 2022. A total of 2.8 GW of small-scale solar capacity was installed in 2022. This is the third highest installed capacity on record, surpassed only by the pandemic boom years where discretionary spending was skewed to home improvements. As discussed in the March and June QCMRs, a combination of factors contributed to the contraction in the first half of the year. This includes household discretionary spending shifts to travel following the easing of prolonged COVID-19 lockdowns and restrictions.

Almost 900 MW of small-scale solar capacity was installed in Q4 2022 with a record average system size of 9.6 kW (see Figure 2.7). This was driven by the seasonal uptick in larger commercial and industrial installs.

In 2022, only 5% of all SRES installations were commercial and industrial systems greater than 15 kW. However, they contributed 18% of total additional installed capacity. About 500 MW was installed in this capacity bracket over the year, a slight decrease from the 560 MW in 2021. Commercial demand for small-scale solar may increase in 2023 as businesses look to manage cost pressures from high energy prices.

Figure 2.8 shows the number of installations and the average upfront cost to consumers of rooftop solar PV systems from 2016 to 2023.¹ There has been an upward trend in rooftop solar PV installations since 2016. This correlates to a reduction in the payback period until 2020 driven by component price reductions, economies of scale in manufacturing processes, installation efficiency and increased competition in the industry. The steep decline in the payback period in 2017 was in part due to the doubling of the feed-in-tariff in New South Wales.
 

From 2020, increasing component prices due to COVID-19 related shortages, combined with ongoing increases in average system size, increased the upfront cost of solar PV systems. However, those larger systems have shorter payback periods. In mid-2022 increasing energy prices started bringing payback periods down again. For 2023, increasing energy prices may reduce payback periods to 3-4 years in some areas, despite STC reductions from the reduced deeming. Higher energy prices improve the economics of installing rooftop solar, as consumers can avoid purchasing energy from the grid while their solar systems are generating power.

Figure 2.8 shows consumers have been commercially savvy in increasingly investing in rooftop solar as payback periods fall.

In 2023, system installations and installed solar PV capacity may return to near record levels as energy bills increase and payback periods fall. The CER expects at least 3 GW of small-scale solar PV to be installed in 2023. If the H2 2022 trend continues, total added capacity for 2023 could reach or exceed the 3.2 GW record seen in 2021.

Increasing demand for battery storage

The proportion of solar systems with concurrent battery storage reported to the CER increased to almost 7% of total installations in 2022. This is more than double the 3% in 2021, noting it is a change off a small base. As noted in the June QCMR, this data is voluntarily reported to the CER so it provides an indication of year on year growth rather than the total number of battery installations.²

STC market dynamics

Over the 2022 assessment year, 42.6 million STCs needed to be created and surrendered (or about 820,000 creations each week) to meet the Small-scale Technology Percentage (STP) for 2022 of 27.26%.³

In 2022, only 38 million STCs were created. This meant new STC supply was below the required amount to meet STP liability in most weeks. This created a certificate deficit that peaked in mid-June 2022 (see Figure 2.9).

Creations trended up towards the end of the year with almost every week in November and December above the weekly volume required for the STP. However, this was not sufficient to address the deficit from the first half of the year. By the end of the year the deficit had declined to 10% of required creations, or approximately 4.3 million STCs.

The low availability of STCs on the open market saw a decline in STC transactions (see Figure 2.10) and a near constant STC spot price at $39.90 for most of the year as the STC clearing house remained in material use. The seasonal peaks around the surrender dates in February, April, July and October were still observed but were subdued relative to previous years despite the higher surrender requirements.

The STC clearing house saw sustained use during 2022, facilitating 260 transactions for 16.2 million regulator created certificates. If recent strong installation and STC creation trends continue it is likely the STC clearing house will return to surplus in late 2023.

Footnotes

¹ Estimates provided for 2023 are indicative only. Upfront costs are based on average 7kW system installed in NSW and include the value of the STC incentive. Prices for 2016-2022 data sourced from Solar Choice.

² Based on data voluntarily reported to the Clean Energy Regulator. This may be an underestimate of the total number of households with rooftop solar PV systems with connected battery storage.

³ 42.6 million STCs reflects the nominal target of 47.7 million STCs minus the remaining balance of 5.1 million STCs following the 2021 assessment year.